How to Switch SIP from One Fund to Another?

SIP is a highly popular strategy to invest in mutual funds. However, to keep their investments on track, some investors often wonder how to switch SIP from one fund to another.

While the process appears quite easy — sell funds and invest in a different SIP — it can be a bit tedious if you don’t wish to stop your investment even for a short while.

Can We Change SIP Online or Offline?

No, the practice of switching is not applicable to SIPs. When you invest in an SIP, you make an agreement with an Asset Management Company (AMC). While you can pause or stop it, you cannot shift your investment midway.

You can, however, switch mutual funds.

How to Switch Mutual Funds?

While there’s no solution to the query of how to switch SIP, we can understand how the process works in mutual funds -

Within the Same Mutual Fund Scheme

You must fill out a switch form, where you need to specify which units will be moved from the present mutual fund scheme to the destination fund scheme. 

Both the switch-in and switch-out must fulfill the criteria for minimum investment. Similarly, at the time of switching, consider the impact of both exit burden and capital gains tax. 

To a Different Mutual Fund Scheme

You cannot directly do this. The only way around is to sell one fund and invest the total amount in another fund. You can make a redemption request for the initial amount and wait for the funds to be deposited in your bank account. After receiving credits from the first mutual fund, fill out the application for the mutual fund scheme where you wish to reinvest the revenue.

Factors to Consider Before Switching in Mutual Funds

Here’s what you need to keep in mind before switching mutual funds -

• Reason Behind Switching: It’s advisable to switch mutual funds for a clear and justified cause, such as a change in your risk profile, investment purpose, time horizon, or performance of your funds. Making a switch in mutual funds in the absence of a proper reason might affect your long-term results and raise your costs.
• Exit Load and the Taxes: When you make a switch from one mutual fund to another, or from a regular plan to a direct plan, it is marked as a new investment. This can bring an exit load, which is calculated as a percentage of the Net Asset Value (NAV). It is charged by the concerned fund house if you sell your funds before a set time. Apart from that, you may also incur capital gains tax on the profits made from the switch, as per the category and the period for which you held the fund. While this won’t be an issue in the UAE, considering its zero tax on personal income, it can certainly diminish your profits in India and other countries.
• Suitability of the New Fund: Thoroughly research the new fund where you want to switch, and check its background — past performance, expense ratio, composition of the portfolio, fund manager's track record, risk-return profile, and consistency.

Methods for Switching Between Mutual Funds

This can be done in 2 ways — online or offline:

Online Method -

• You can switch mutual funds online through your mutual fund account, either via the fund house's website or a third-party platform.
• Proceed to the page where you can buy, sell, or switch mutual fund units.
• Select the 'switch' option.
• Select the particular fund as well as the one where you plan to invest now.
• Perform the on-screen instructions to complete the switch.

Note that it may require a few working days for the switch to show up in your account statement.

Offline Method -

• Visit the nearest branch of your fund house, where you can fill and submit a switch form.
• Provide details such as your portfolio number, fund name and plan, the current fund, and the one where you want to invest now.
• You can also get this completed via your intermediary, such as an agent, a distributor, or a broker.

When Can You Switch Mutual Funds?

You may opt for a mutual fund switch under the following circumstances -

• When you have a shift in financial objectives
• If you want to go for a different asset category
• If you plan to move to a different asset management company (AMC)
• In case you find your current mutual fund underperforming 
• If you want to switch from a regular to a direct mutual fund plan